The central bank conducts monetary policy to influence the economy from "summary" of Principles of Macroeconomics by N. Gregory Mankiw
The central bank plays a crucial role in influencing the economy through its monetary policy. Monetary policy refers to the actions taken by the central bank to control the money supply, interest rates, and ultimately, the overall performance of the economy. By adjusting these key variables, the central bank aims to achieve macroeconomic objectives such as price stability, full employment, and economic growth. One of the primary tools used by the central bank to conduct monetary policy is open market operations. Through open market operations, the central bank buys or sells government securities in the open market to control the money supply. When the central bank buys government securities, it injects money into the economy, leading to lower interest rates and increased borrowing and spending. Conversely, when the central bank sells government securities, it reduces the money supply, causing interest rates to rise and dampening b...
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